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Capital Budgeting Brady 20,000 $ Rogers Kaepernick 30,000 $ 15,000 $ 3 4 5...

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Accounting

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Brady 20,000 $ Rogers Kaepernick 30,000 $ 15,000 $ 3 4 5 6 7 8 9 Capital Project Options: Investment required Annual net cash flow Year 1 Year 2 Year 3 Year 4 Year 5 Total cash flow for 5 yrs Usefule life in years: "Hurdle rate" (cost of capital) Estimated Salvage Value 10 10,000 8,000 8,000 4,000 5,000 35,000 $ 5 24.75% 5,000 $ 8,000 9,000 10,000 8,000 6,000 41,000 $ 5 24.75% 10,000 $ 6,000 6,000 10,000 10,000 4,000 36,000 5 24.75% 12,000 $ 11 12 13 14 $ 15 16 use 20% tax rate for ARR 17 18 19 Payback Period Accounting rate of return Internal rate of return Net Present Value Profitability Index 20 21 21 22 23 24 Which project should be eliminated prior to NPV and Pl analysis? Which project would you select if you needed your money returned ASAP? The Accounting Rate of Return 'Understates' actual cash flow for which project? Which project would you select to maximize the profit return? 25 26 27 28 29 an

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